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Monochrome has partnered with a yet-to-be announced major bank to pilot cryptocurrency mortgages for high-net-worth individuals, marking a turning point for how digital currency is perceived in Australia.
The pilot is made possible through Monochrome’s proprietary IBTC Bitcoin ETF.
Banks are heavily regulated and cannot easily lend against unregulated assets like direct bitcoin. The exchange-traded fund (ETF) is a regulated security (like a stock), removing this barrier and allowing traditional finance.
The bank will treat the ETF as marginable collateral, allowing loans with a loan-to-value (LVR) ratio of up to 60 per cent for property worth $5 million or more.
With the ETF being regulated, this also paves way for lenders to charge interest rates in line with more traditional financing.
This is significant as other cryptocurrency-backed mortgages come with far higher interest rates. For example, the recent announcement of Block Earner launching cryptocurrency home loans for loans up to $5 million.
Interest rates start at 9.50 per cent per annum with a 40 per cent LVR and comparison rates of 11.93 per cent per annum with 80 per cent LVR.
The fixed rate is 11.50 per cent per annum for 12 months with 50 per cent LVR, while the comparison fixed rate is 12.17 per cent with 80 per cent LVR.
The regulated ETF cryptocurrency could see interest rates in line with standard home loans provided by major banks.
The bank has reportedly approved the product but wants to complete a few initial transactions quietly before making a public announcement. It is currently seeking suitable launch customers for these first pilot transactions.
Cryptocurrency is becoming more accepted and has begun creeping its way into mortgage discussions since the high-profile Freddie Mac/Fannie Mae case in the US.
Two of the biggest home loan financers in the US were ordered by the Federal Housing Finance Agency to consider cryptocurrency as an asset when entering a mortgage.
In discussion with Broker Daily, John Eccles, chief product officer at Monochrome said the ETF has accelerated the adoption of traditional finance for cryptocurrency due to it being regulated.
“In my belief, it’s a matter of when not if that banks will sell Bitcoin, store Bitcoin, and lend against your Bitcoin. And in the US, that's exactly where it's headed,” said Eccles.
“What we're seeing is that the crypto lending field is ultimately going to end up being absorbed or disrupted by traditional finance.”
As cryptocurrency becomes embraced by major banks, change is likely to come swiftly.
While the major bank in question is yet to be revealed, this pilot could shake up the mortgage space and shift perceptions of digital wealth in Australia.
[Related Crypto meets mortgages: Will digital wealth be factored into serviceability?]
